Law and Econ Classics - Of Coase and Cattle
At Grove City College, I teach Law and Economics-a course that explicitly examines how "people expand their options by cooperating." It therefore lies at the heart of "mere economics." In this sermon series of sorts, I'll be posting a summary of classic L&E papers over the coming weeks.
Ellickson, Robert C. "Of Coase and cattle: Dispute resolution among neighbors in Shasta County." Stanford Law Review 38 (1985): 623-687.
Ellickson goes to Shasta County, California for an ethnographic investigation. There he talks with cattle ranchers and farmers to determine the applicability of the Coasean story. In this field work, he finds that the legal rules for liability change often, but the property rights allocations do not. This is not, however, because of side payments a la Coase. The patterns of activity simply do not change with the law. The transactions costs are not low; they are high. The high cost of tracking and enforcing formal legal rules make side payments non-economic. Instead, the individuals are constrained spontaneously-emergent, informal norms that lead to efficient outcomes. Enduring social relationships lead to mutual consideration. “Open” and “Closed” ranges—differential property rights allocations—did not change the behavior of Shasta County inhabitants. They instead relied on informal norms and punishments (gossip, harming trespassing cattle, paying for destroyed crops, etc.) that were self-enforcing. This was bargaining beyond the shadow of the law; not in it. People can get along and create efficient outcomes using informal norms without reference to formal laws. The law (often) matters less than you think.
